Internet IPO Bubble Redux?
A lot of investors lost their shirts during the dot.com debacle of the late 1990s and early 2000, and history just might repeat itself with a new and different batch of Internet company IPOs, according to a report that shows big banks luring their wealthy clients onto the get-rich bandwagon once again.
The report, published by Swiss research firm MyPrivateBanking, cautions private banking clients to avoid investing in-or at least be very skeptical about-Internet IPOs, which today consist primarily of Chinese companies and social networks. It is common practice for the investment banking and wealth management divisions of large banks to collaborate in order to distribute IPO stock among their wealthy individual clients, the report explains-a practice which MyPrivateBanking deems "somewhat risky and dubious." The report concludes that the wealthy clients of the banks leading these IPOs should be on the alert if they are offered the chance to participate in IPOs orchestrated by them. Investors should examine the IPO's business model, sustainability of revenues and profits, and ask the offering bank questions about the company's underwriting history and how many shares remain with the newly listed company's founders and original investors.
MyPrivateBanking said their researchers examined the previous dot.com bubble and the banks who were involved in "the most disastrous deals of that time," in order to see what could be learned and what conclusion high-net-worth investors might draw for themselves. The research firm created a list of the top ten high-profile, value-losing dot-com IPOs and subjected each to a detailed review. "In not one single case did investors-over the long term-make a profit from the IPO," the report notes, adding that in 60% of cases investors lost all or almost all of their assets.
Among the worst performers-listed by company/IPO, year, business model, performance since IPO (excluding dividends), and lead underwriter(s)-are Webvan (1999, online grocery, bankrupt, Goldman Sachs); Pets.com (2000, online retailer, -99%, Merrill Lynch); Barnesandnoble.com (1999, online retailer, -83%, Goldman Sachs, Merrill Lynch); and Vonage (2006, voice over IP, -73%, Citigroup, UBS, Deutsche Bank).
Investors' "irrational exuberance" in regard to some of these IPOs and the dot.com bubble itself played a greater role than any real examination of a company's realistic valuation, according to the report. Today, looking at the balance sheets of recent Internet IPOs, "we see a lot of similarities that should worry an investor," said MyPrivate Banking.
Many of the same investment banks that led managed issues during the Internet mania of the late 1990s are at it again, according to the research firm. In examining 16 of the most prominent Internet and social media IPOs since December 2010, the report notes that Morgan Stanley is among the lead underwriters for 50% of the IPOs; Deutsche Bank and Credit Suisse for 31%; Goldman for 25%; and BofA Merrill Lynch for 19%.
The report also includes a listing and analysis of prominent social media and Internet IPOs from the past six months and those planned for 2011 and 2012. Among them are Yandex, a Russian search engine, whose underwriters are Morgan Stanley, Deutsche Bank, and Goldman; LinkedIn, the social network, underwritten by Morgan, Bank of America-Merrill Lynch, and JP Morgan; and Facebook, said likely to be floated in 2012, its lead underwriters yet to be filed.
While there have been successful Internet IPOs, the report concludes that the risk-reward relationship is "far too unpredictable and disadvantageous for private investors. There is a substantial risk for investors that the mix of the same major players, mechanisms and promises that were seen in the last tech boom eventually leads to the same, disastrous results."
Go to www.myprivatebanking.com for further information.
In other news ...
Despite the tough financial climate, hedge funds have fared well, with investments continuing to grow through the downturn by as much 10%, according to London-based finance magazine World Finance, which said there is currently over $2 trillion of assets under management by hedge funds across the world-exceeding the market's peak in 2008-and that the amount is increasing as investors move away from poorly performing share markets. Go to www.worldfinance.com for further information.
The American Institute of Architects (AIA) will be making available to potential investors a database of stalled building projects nationwide that make economic sense but which lack the financing (banks are not yet willing to lend) to be completed. The average value of each stalled project is about $50 million. AIA has engaged in this initiative as a participating member of CGI America, the first conference of the Clinton Global Initiative, which is dedicated to economic issues impacting the U.S. The database should be available in coming months, said AIA. Go to www.aia.org for further information.
The Credit Suisse Liquid Alternative Beta Index, which reflects the performance of the overall hedge fund industry, generated negative performance in June, finishing down 0.58% for the month, according to Jordan Drachman, head of research for Alternative Beta Strategies at Credit Suisse. Of the five LAB Liquid Indices, event driven saw the most significant decline, finishing down 1.43% as equity markets continued to fall amid uncertainty regarding Greek debt. Since its launch on June 1, 2008, the LAB Long/Short Liquid Index has tracked the benchmark Dow Jones Credit Suisse Long/Short Equity Hedge Fund Index with an overall correlation of 87% and an annualized return of 9.62% versus 9.34% for its benchmark through May, said Drachman. Go to www.hedgeindex.com for detailed information.
After a downward trend between 2008 and 2010, CFO total compensation is expected to show a substantial improvement in 2011 at both private and public companies, according to the 2011 CFO Incentives and Compensation Survey conducted by Michal Matejka, Ph.D., of the W.P. Carey School of Business at Arizona State University, in conjunction with the American Institute of Certified Public Accountants. Findings showed that median CFO cash compensation declined by about 7% between 2008 and 2010, with CEOs, presidents and COOs declining even further. In 2011, CFOs of private companies had on average 54% of their bonuses contingent on meeting financial performance, 14% on explicit non-financial targets, 27% on subjective awards, and 5% based on other factors. Go to www.aicpa.org for further information.
A story published on Investor Uprising, an online "intelligence network" launched in April that explores business trends and investment strategies, indicates that the new fever gripping the IPO market may not be justified, as most IPOs trade below their initial offering price. More than half of the 124 deals made in the global IPO market in the past three months were trading below their respective offer prices by the end of the quarter, according to Renaissance Capital. The total average return was just 1%. Go to www.investoruprising.com for further information.
MetWest Ventures LLC (www.metwestventures.com), a multi-strategy asset management platform headquartered in Los Angeles, has acquired a majority interest in Reed Conner & Birdwell LLC (www.rcbinvest.com), a Los Angeles-based value equity investment advisor with $1.6 billion under management. Richard S. Hollander, chairman and founder of MetWest Ventures, will become chairman of RCB, and Richard Schweitzer will assume the roles of CFO and CCO. It is expected that Howard Gleicher, CEO and CIO of Aristotle Capital Management (www.aristotlecap.com), will be named RCB's CIO, according to MetWest.
Lexington Partners, a New York-based dedicated secondary private equity manager, has announced the final close of Lexington Capital Partners VII LP and associated vehicles, with equity commitments totaling $7 billion. The fund, which commenced investing in 2010, has been formed with commitments from over 200 institutional investors, including public and corporate pension funds, sovereign wealth funds, financial institutions, endowments, foundations and family offices, along with high-net-worth individuals. Approximately 60% of the fund's investment came from U.S. investors. To date, Lexington has committed approximately 40% of LCP VII's capital, completing several significant transactions with U.S. and European banks and financial institutions. Go to www.lexingtonpartners.com for further information.
The Dow Jones Credit Suisse Core Hedge Fund Index lost 1.95% overall in June, according to Oliver Schupp, president of Credit Suisse Index Co. LLC, who cited as factors European debt concerns and a general lack of fundamentally driven trends that hurt many managers. The global macro sector experienced the most significant decline, falling 3.12%, while fixed-income arbitrage was the month's only bright spot, gaining 0.20% as managers benefited from increased interest rate volatility and widening swap spreads; the strategy remains up 2.38% year to date, Schupp said. Go to www.hedgeindex.com for further information.
The Chartered Alternative Investment Analyst Association (CAIA), sponsor of the only globally recognized designation for alternative investment expertise (alternative investments are the fastest growing segment of the asset management industry), has entered into an academic partnership with Cass Business School, which is part of City University London and rated among the top 1% of business schools worldwide. Through the partnership, Cass MSc in Investment Management students will have access to courses that cover 60% of the material required to earn the CAIA designation. Go to www.caia.org for further information.
Events
The 2011 FOX Financial Executives Forum: Navigating the New will be held July 13-14 at the JW Marriott Chicago. Subjects to be explored include estate planning, insurance, technology and taxation. For information, go to the Family Office Exchange Web site at www.foxexchange.com.
The 2011 Global Hunter Securities Conference, designed for investors and those interested in sectors that include energy, China, metals, and mining, will be held July 17-19 at the InterContinental Hotel in San Francisco. Go to www.ghsecurities.com for further information.
The Second Annual One Young World International Youth Summit, a gathering of global business executives and "young leaders of tomorrow" from 192 countries, will be held in Zurich September 1-4. Go to www.oneyoungworld.com for further information.
The 9th Annual Managed Accounts & UMA Summit, hosted by Financial Research Associates, will be held September 12-13 at The Harvard Club in Boston. Special Harvard Club rates expire August 22. Go to www.frallc.com for further information.
The NACD (National Association of Corporate Directors) Board Leadership Conference 2011 will be held October 2-4 in Washington DC. Featured speakers include Ambassador Charlene Barshefsky, former U.S. trade representative, and Gwendolyn S. King, director, Lockheed Martin, Marsh & McLennan Companies Inc. and Monsanto Company. Go to www.nacdonline.org for further information.
On The Move
Barclays Wealth has hired six investment representatives from its rivals, with more than $26 million in combined annual production and more than $1.1 billion in AUM. The new hires include: Daniel Caso, who joins Barclays in Boston from Bank of America Corp.'s Merrill Lynch Wealth Management; Robert E. Miller, who previously was at Goldman Sachs Group Inc. and will serve in New York, with Jorge Carreras and Carlos Molina, both previously at Morgan Stanley Smith Barney's private wealth management unit; and Douglas R. Bayer and Joseph Gilbert, also from Morgan, who will serve in Washington, D.C.
BNY Mellon has completed its acquisition of Chicago-based Talon Asset Management's wealth management operations, adding more than $800 million in AUM to BNY Mellon's wealth management business. The firm has named Managing Director Michael DiMedio regional president of its first Chicago office, which also will be home to former Talon principals Terry Diamond, Alan Wilson and Edwin Ruthman, as well as newly appointed Senior Director Steven Appell, who represents the firm's family office services group in the region.
San Francisco-based Northern Trust, which provides financial services for affluent individuals and families, has hired Richard J. Leider as vice president and wealth strategist at the firm's San Francisco office. Previously, Leider led global real estate and private equity practices on behalf of Tano Capital LLC, and had his own institutional asset management advisory firm, the Leider Group LLC in San Francisco.
Windham Capital, an independent investment firm based in Boston, has appointment Chris Arnold vice president of client relationship management. Previously, Arnold was regional director of Boston-based TS Capital, and was a vice president of BNY Mellon Asset Management.
New York-based Cowen Group Inc., which provides alternative investment management, investment banking and other services, has hired Ray Cameron as a managing director and head of corporate access. Previously, Cameron was head of issuer services at LiquidNet and head of corporate access at Morgan Stanley.
JP Morgan Chase has appointed Jeff Urwin global head of investment banking. Since July, Urwin has served as co-head of North American investment banking; previously, he was co-head of investment banking at Bear Stearns, which he joined in 1996 (and which JP Morgan Chase acquired in 2008), and head of global emerging markets at Lehman Brothers Holdings Inc. in New York.
Atlanta-based SunTrust Banks Inc. has hired Ernest N. Dawal, former executive vice president and senior director of investments for Wells Fargo Wealth Management, as chief investment officer for Sun's Private Wealth Management and Institutional Investment Solutions lines of business.
Nancy Harrison, senior fine art specialist at Fine Art Asset Management LLC, a subsidiary of Emigrant Bank Fine Art Finance LLC, has been appointed president of the Appraisers Association of America, the oldest non-profit association of personal property appraisers, with over 500 members across the United States, Canada, Europe, and Asia. Harrison will continue to work at Fine Art Asset Management, which is headquartered in New York City.
-Cort Smith